Compensation for CEOs Soars in Pandemic’s Wake
The executive pay gap between large and small companies is shrinking, too
Compensation for chief executive officers increased substantially in 2021 after small or negative growth in 2020 and 2019. That’s one major takeaway from Gallagher’s CEO and Executive Compensation Trends: 2022 Edition, an annual report that this year provides a baseline for assessing the pandemic’s impact on executive compensation.
The report includes compensation data from 2,845 companies and covers compensation for CEOs, named executive officers (NEOs), and chief financial officers (CFOs). Gallagher analysts examined the most recent corporate disclosures by Russell 3000® companies to review individual elements of compensation packages and executive compensation trends by major industry and company size. The report also includes comparisons with S&P 500® organizations to offer additional perspective on the differences between large and small firms.
CEO pay grew 28.2% for the overall Russell 3000 and 17.7% for the S&P 500 indices, according to the report. This contrasts with rates of 3.0% and -4.1% for 2020, respectively, and 2.0% and -1.6% for 2019.
“We see executive pay increases in salaries, bonuses, and LTI, with LTI 50% over the previous year for the Russell 3000 excluding S&P 500,” the report states. “Clearly, this represents a rebound from the COVID-19 years when pay cutbacks were prevalent.”
Analysts cite several factors for this, including “robust economic growth fueled by stimulative fiscal and monetary policy,” increased company focus on retaining top talent, and larger-than-usual one-time salary and other compensation reductions in 2020 — resulting in higher-than-usual year-over-year changes.
“While CEO pay growth witnessed large increases, particularly in the LTI component of pay, incumbent CEO pay shows increases slightly lower than those for CEOs overall,” according to the report. “These increases suggest that companies continue to reward successful CEOs. Moreover, the volatile business climate with rising interest rates, supply chain challenges, international turmoil, and labor force constraints requires capable CEO leadership able to navigate through these challenges, leading to continued demand for top talent.”
According to Gallagher’s data, NEOs and CFOs earn roughly 66% less than CEOs.
Additionally, “the disparity in pay increase rates between larger and smaller companies shows that the compensation gaps continue to close,” analysts note in the report. “Smaller companies hire from larger companies and typically represent a higher growth business model. Smaller biotech companies attracting talent from larger life science companies represent an example of this trend. As a percentage of pay, smaller company compensation leans toward LTI. This is particularly the case for companies under $50 million in revenue.”